STATE OF NEVADA DEPARTMENT OF EMPLOYMENT, TRAINING AND R4EHABILITATION EMPLOYMENT SECURITY COUNCIL MEETING. October 2, 2013

Transcription

1 STATE OF NEVADA DEPARTMENT OF EMPLOYMENT, TRAINING AND R4EHABILITATION EMPLOYMENT SECURITY COUNCIL MEETING October 2, 2013 Live Meeting Video Conference to: Legislative Building Grant Sawyer Building 401 S. Carson Street, Room E. Washington Ave., Room 4412E Carson City, Nevada Las Vegas, Nevada Note: This meeting was also broadcast on the Internet at Council Members Present Paul Havas, Chair Employers Paul Barton Public Ross Whitacre Public Margaret Wittenberg Employers/BOR Charles Billings Employees/Labor/BOR Danny Costella Employees/Labor Council Members Absent Kathleen Johnson Public/BOR Michelle Carranza Employers David Garbarino Employees/Labor Department of Employment, Training and Rehabilitation (DETR) Staff Present in Carson City Renee L. Olson, Division Administrator, Employment Security Division (ESD)/DETR Kelly D. Karch, Deputy Administrator, ESD/DETR J. Thomas Susich, Sr. Legal Counsel, ESD/DETR Bill Anderson, Chief Economist, Research & Analysis Bureau, DETR David Schmidt, Economist, Research & Analysis Bureau, DETR Edgar Roberts, Chief of Contributions, ESD/DETR Paul Brugger, Management Analyst, UIC/ESD/DETR Christina Guzman, Management Analyst, Administration/ESD/DETR Jeremy Hays, DETR Lynn King, Administrative Office, ESD/DETR Joyce Golden, Administrative Office, ESD/DETR Present in Las Vegas Art Martinez, ESD/DETR Members of the Public, Media and Other Agencies Carol Vilardo, NTA, LV/NV Amanda Schweisthal, Retail Assoc. of NV, LV/NV Bob Ostrowski, NRA, LV/NV Mark Tulman, NAE, Reno/NV Cy Ryan, LV Sun, LV/NV Ed Vogel, LV Review Journal, LV/NV Sandra Cherub, AP, Carson City/NV

2 Page 2 of 36 Geoff Dornan, NV Appeal, Carson City/NV Tray Abney, Chamber of Commerce, Reno/NV Joanna Jacub, Ferrari Public Affairs, Reno/NV Brian Reeder AGC, Reno/NV Exhibits Exhibit A - Exhibit B - Exhibit C - Exhibit D - Exhibit E - Exhibit F - Attendance Record Agenda for the Meeting/Workshop Addressing Federal Unemployment Debt Economic Projections sand Overview Review of Trust Fund Tax Schedule Explanation

3 Page 3 of 36 I. CALL TO ORDER AD WELCOME Paul Havas, Chair of the Employment Security Council called the meeting to order at 10:00 a.m. on October 2, 2012, and welcomed everyone to the meeting. He asked the Council to introduce themselves and indicate their representation. II. INTRODUCTION OF COUNCIL MEMBERS Danny Costella, representing Employees/Labor. Charles Billings, representing Employees/Labor ad member of the Board of Review. Ross Whitacre, representing the public. Margaret Wittenberg, representing employers and member of the Board of Review. Paul Havas, Chairman of the Employment Security Council. Paul Barton, representing the public. Tom Susich, Senior Legal Counsel for the Employment Security Division. Kelly Karch, Deputy Administrator, Unemployment Insurance System. Renee Olson, Division Administrator of the Employment Security Division. III. PUBLIC COMMENT Mr. Havas thanked everyone. Pursuant to the proviso for public comment, we may limit public comment to five minutes per speaker, just to echo that which we kind of express at each meeting. We would like to, with your indulgence and acceptance, move on the Agenda. Dave Schmidt will address item VI, under VII, after VIIA. IV. APPROVAL OF MINUTES A. Public Comments Mr. Havas continued by saying he would like to have a discussion and action relating to the approval of minutes from October 2, Could we have any public comment, there being no comments at this point, we will continue with discussion of the minutes or an invitation for a motion to approve the minutes as mailed. B. Approval of Minutes Mr. Whitacre said he would move to approve the minutes of the October 2012 Council Meeting with the change that was noted earlier to the Chairman. Paul Barton seconded that. Legal Counsel reminded the Council that there was an amendment to the minutes that was not conducted during the meeting, it must be stated what the amendment was. Mr. Whitacre noted that on the last page of the minutes, at adjournment time, that that motion was made by Mr. Ray Bacon. And he, of course, is not a member of the Council and so, at this point, I don t know if anybody knows who made that motion, but it was not Mr. Bacon.

4 Page 4 of 36 At this point it was determined that Danny Costella made the motion to adjourn the last meeting and that it did receive a unanimous response. So that should be included in our minutes, as mailed. Any other discussion on the motion on the floor to approve the minutes as mailed? Mr. Havas mentioned that the amendment is to allow for an inclusion of Danny Costella s motion to adjourn the meeting in Mr. Chairman, I m sorry to create so much trouble, but since the minutes have been amended, there should be a motion to amend the minutes, a second, and then a vote to amend the minutes. And then we can proceed. Ross Whitacre made a motion to approve the minutes of the 2012 ESD Council Meeting, as amended. This was seconded by Paul Barton. The motion carried unanimously. V. AGENCY AND LEGISLATIVE UPDATES Renee L. Olson, Division Administrator, Employment Security Division Mr. Havas next called on Renee Olson to speak on Legislative Updates. Mrs. Olson began by first introducing some members of her staff before going into her presentation. Mr. Kelly Karch, he is our Deputy Administrator in charge of the unemployment insurance program. He s the head of our UI operation and closely manages the program, especially from a day-to-day perspective, boots-on-the-ground kind of perspective there. And we couldn t do without him. So I wanted to introduce him. And you ll also hear from Mr. Edgar Roberts. He s our Chief of Contributions. He will be talking to you about our tax structure and how we calculate the experience ratings to employers. And I have with us Mr. Tom Susich, our senior attorney for the UI program. And he s here to advise us, as he s already demonstrated, the legal matters that may come before us today. I don t think I m stretching it too far to say that Mr. Susich knows more about UI law than anyone in Nevada. So we re happy to have him with us here today. I also have various other members of my staff in the audience who do the really hard work of pulling this meeting together. And I d like to recognize them and thank them today, before we go on. They provide vital support to this process, so if anyone needs anything in the meeting today, one of my staff members can help you out. Last but not least, we ll hear from the Research and Analysis Bureau. The famous Bill Anderson is here with us today to provide an overview of the state s economic condition. He s our chief economist. And with him is the indispensable Dave Schmidt. He s an economist with R&A. He works for Bill. And he will help us understand the rate scenarios we will present in a few minutes. So I m sure with so many experts in the room, we ll be able to answer any of your questions and provide you lots of information today as we move on through the meeting. And now I ll move on with some legislative updates. The last time we met, we were moving towards a legislative session, and during that session, we proposed several Bill Draft Requests (BDRs), the majority of which were approved through the

5 Page 5 of 36 legislature. I ll start with a couple of federal mandates that we put into place. We re required to keep Nevada state law in compliance with federal law. A couple of the things that we put forth were that a 15 percent penalty be deposited in the state s unemployment insurance trust fund for any amounts of benefits obtained through fraud, so that when we collect those benefits -- fraudulent benefits, when we collect those back, we charge 15 percent, and that goes into the trust fund. The second part of that legislation also stated that employers cannot be relieved of charges when the employer fails to provide adequate separation information resulting in an overpayment by the Division. The Division also requested authority to extend the time that the administrator has to determine fraud occurred on a claim, and adds an additional 5 percent penalty. And this penalty would be used to enhance or to support any integrity measures in the program that we put in place. The Division also requested authority to improve and streamline the process for garnishing wages as part of the Division s collection efforts. This process is put in place after all other attempts to work with the claimants on overpayments have been exhausted. So, usually what we ll do is that we ll work with people as much as we possibly can to set up a payment plan or some form of repayment that they can live with. But when those plans are not met, then we have the ability now, to move towards a garnishment process. The Division also requested that statute be amended to provide that, when an employer s rate is transferred, that the debt is transferred as well to the successor entity. We finally amended statute to provide that, when an employer s assets are transferred in the case of a sale or any other form of asset-transfer, the debt is transferred to the successor entity as well. Probably the most well-known or most talked about parts of the legislation that we requested, had to do with the outstanding trust fund loan debt. The Division continues its work in managing the outstanding trust fund loan. As of today, borrowing stands at approximately $520 million. This is down significantly from the same time in the prior year, maybe, I m looking at Dave, $100 million? Dave Schmidt resp9onded with $150 million. Mrs. Olson went on to say, $150 million lower than we were the same time in the previous year. Interest for the last year accrued at 2.54 percent, about that. And we just made our second interest payment of approximately $16.5 million. In prior years of borrowing, this interest was paid from the state s general fund account. This year, with the passage of AB482, we met that federal interest obligation for a special assessment paid by employers. At our last meeting, we were also discussing additional legislation that would allow us to refinance the outstanding loans and reserves by issuing bonds. We now have an additional tool, if you will, that we can use in an effort to resolve the borrowing situation that still faces Nevada s employers. With the passage of SB515, the Division has the authority to request that the State Board of Finance issue bonds, in order to refinance the outstanding debt and/or restore reserves to the trust fund, and to do so in order to benefit the system as a whole, by providing savings to employers on the overall cost of the debt and put the trust fund in a better position to withstand another economic downturn, should one occur in the near term. So, based on the requirements of SB515, the Division has developed regulations. These regulations govern how and when the assessments would be charged to employers, and those

6 Page 6 of 36 assessments are or would be used to repay the bond debt. We held a small-business workshop for these regulations at the end of July, and a hearing for the regulation was held on August 27 th. I adopted those regulations after considering comments provided during the meeting and in writing. Those regulations were adopted on the 28 th of August. We are now scheduled to have those regulations considered by the legislative commission tomorrow, on October 3 rd. With the approval of the regulations, we ll be able to continue to pursue the issuance of bonds. The bonds that we are currently considering are tax-exempt, short-term, and limited to refinancing the outstanding federal debt. We have been diligently working through this process with financial advisers, underwriters, attorneys, and the State Treasurer s office to create a financing structure that benefits Nevada s employers in the UI system. Barring any unanticipated anomaly in the bond market, we believe we have the ability to issue bonds at this time that provide employers with overall gross savings, as well as present value savings for the repayment, and a repayment term that approximates or is close to the estimated payoff of the loans if we did not bond. Also, we believe we can issue the bonds and repay the federal government before November 9 th, in time to reset FUTA taxes to the minimum levels charged. Therefore, what we re going to be asking the Council is to give us recommendations, for they are twofold. We have the average SUTA tax rate we d like to consider under a no-bond scenario, and the average SUTA tax rate under a bonding scenario. We would also, along with that bonding scenario, ask for a recommendation from the Council or to express a preference, if they could, on whether, if we go ahead with the bonding, whether the SUTA rate plus the bond assessment rate should approximate the total current tax rates paid now, when you combine SUTA and FUTA and AB482 and consider that combined rate of what employers are paying. Is it the preference to approximate that rate? Or is it the preference that SUTA should be lower, to decrease the overall tax burden, which would therefore then extend the SUTA rate, that we may have to pay a higher SUTA rate that we may have to pay in the future, than otherwise needed under option one. So I m going to let Dave kind of tackle all of that complicated analysis there. But I m just kind of bringing it up at this point to let you know where we are, what guidance we re looking for at this point. In terms of federal impact -- issues that are impacting the program, there are looming questions I can t answer right now, based on what the federal government is doing. Last year when I concluded my comments, I said it s difficult to anticipate what the federal government would do in the next six months. Today I can t say I know what the federal government will do tomorrow, or even in the next two weeks. So all I can say with certainty now, is that we re uncertain about what s going to happen. But we re managing that day-to-day and we re following the process day-to-day. We have plans in place to deal with whatever happens with the federal government, I should put it that way. Hopefully soon, we ll find out that the federal government is reopening and the debt-ceiling issue is solved. But we also have the question coming up of whether the Federal Emergency Unemployment Compensation program will be extended. Right now that program s set to end at the end of December. I haven t heard anything that would sway my prediction one way or another as to whether they re going to extend that again. As it stands now, for the remainder of the EUC program, benefits we know, through the final quarter of the calendar year, October 1 through December 31, will be 7.2 percent lower, due to the sequestration cuts that were required. We are working under the assumption that the program will end as of December 31 st. The worst thing that could happen, in my perspective, and this has happened to us before, is that if they

7 Page 7 of 36 extend it, then they change all the rules surrounding it. So then we ll have to deal with that when it comes. But we re going to operate as if it s going to end on December 31 st at this point. On that note, I conclude my comments. And I know that next you re going to hear a variety of presentations from DETR staff about the economy and the trust fund. I would be happy to answer any questions. And I think, like I said, we have lots of people here to answer questions as we go along. Mr. Havas thanked Mrs. Olson and called upon Bill Anderson to provide the Council with economic projections and an overview. At this point Mrs. Olson asked to be heard before the next presenter. Mrs. Olson had a few brief comments to make, to take care of some of the legal issues here that we have for the open meeting. This meeting is conducted with the Employment Security Council and by the Employment Security Division and its Administrator, to solicit public comment on the proposed amendment of the tax-schedule regulation in Nevada Administrative Code, Chapter in accordance with NRS 233B.061. Ms. Golden, was proper notice of today s public workshop given as required by NRS 233B.060? Ms. Golden, the Administrative Assistant to the Administrator responded by saying that it was. Mrs. Olson continued to say that in accordance with NRS , the Employment Security Council provides a recommendation to the Administrator regarding a tax-rate schedule for the upcoming calendar year through this process. The presentations you are about to hear are intended to provide you with the information you need in order to make this important recommendation. Before we turn this over to the Chairman, I believe we need to open the floor again for public comment, before we start our workshop. Is there anyone here or in Las Vegas that would like to come up at this time and make public comment? Chairman Havas repeated the question and asked if anyone in the north or south would like to provide any commentary. There were no comments from the public. Mr. Anderson was asked to give his economic projections and an overview. VII. WORKSHOP TO CONSIDER ADOPTION OF REGULATION TO ESTABLISH THE UI TAX RATE SCHEDULE FOR CALENDAR YEAR (Nevada Administrative Code ) A. Economic Projections and Overview (Exhibit D) Bill Anderson, Chief Economist, Research & Analysis Bureau, DETR Mr. Chair and Mrs. Olson, thanks for allowing us, as we do every year, to appear before you. My role today is to -- as it is every year, is to provide you with the kind of overall economic environment in which we re operating, as hopefully that will be useful as you go forward with your deliberations. And then that will transition into Dave Schmidt s more detailed and focused presentation, the indispensable Dave Schmidt, as Renee referred to him, and I wholeheartedly agree. Hopefully you ll find my remarks useful as you absorb his information and then go about your own deliberations.

8 Page 8 of 36 Basically, the picture I m going to try to paint for you today, is one of an economy in Nevada that is growing at a sustainable, a stable and a modest pace. Obviously, you know, we still have some problems, some pockets of weakness, when you have an unemployment rate in excess of 9 percent, that s obviously the case. But for the most part, the positives more than outweigh the negatives, and we ve seen, as 2013 has unfolded, a continuation of the improvement in the overall labor market and economy. What we learned during the last recession was that we re not immune to what takes place beyond our borders. So I ll start out with trying to frame the overall macro environment in which Nevada s operating. One of the key national barometers that we keep an eye on, because it does impact our tourism, gaming and entertainment sector, is consumer confidence at the national level. And you can see that that is trending up, that s the blue line, trending up over time, since the recession peaked, so that s certainly good news. And as a side note, in the red line, you can see that folks nationally, are becoming a little more confident with respect to the labor market. They think jobs are becoming a little bit easier, at least a little less difficult, to obtain. In terms of Nevada s economy, you know I m going to spend most of my time talking about the labor markets, but in terms of the broader economy, taxable sales have been on the rise for a little more than three years, since I put this together. Last week we got information for the month of July, and we re now on a string of 37 straight months of taxable sales gains in the state. Gaming win is very volatile. Again, that was another item where, after I put this together, we got another month s worth of data. And in August gaming win was up 8 percent, but if you average all the ups-and-downs out, we re essentially pretty much holding steady in terms of gaming win. Same is true for visitor volume. Last calendar year was a record year on the visitor s front, and we re holding pretty steady at those levels. Gold prices have come off of their historical highs. That certainly impacts Nevada s rural counties, as I ll show in a little bit. The value of exports, driven by these declining gold prices, has declined. But staff looked at the actual level of exports, the volume of exports, and they re holding pretty steady. In terms of the construction sector, the news on the surface at least, has been fairly encouraging. Permits and starts are up by about a third, relative to a year ago. Prices are on the rise. The major barometer that we track that allows us to make some relatively confident comparisons is the FHFA Home Price Index. And in the second quarter, Nevada s year-over-year gain was about a little less than 23 percent, and that was the strongest gain in the nation. So, you know, some pretty good news, again I said at least on the surface. And I qualify those remarks because we re essentially rising off of historical lows. So the news is good, it s better, but I do think it s important to keep it in perspective. In terms of the number of employers in the state, you can see that they took a tumble during the recession. They ve been on the rise since 2011, we have roughly about 60,000 employers in the state, so we re starting to see their ranks increase. In terms of average weekly wages, wages bottomed out during the recession. We actually saw two years of decline. But since then, they ve been on the rise. Again, it s a very volatile measure. But first quarter wages are essentially unchanged from a year ago, down ever so slightly, by about $2, $844 per week, versus $846. That s up about 5 percent from the first quarter of 2005, when the economy was more-or-less peaking.

9 Page 9 of 36 Through the Chair, Mrs. Olson asked if she could ask a question. Given the floor, Mrs. Olson noted that it was a week ago or so, that she saw UNLV release some data on this information that contradicts these numbers. Could Mr. Anderson please address that. Mr. Anderson responded. Through you, Mr. Chair, to Ms. Olson. Last week, some researchers at UNLV talked about average weekly wages over time. There are basically two measures of average weekly wages. What I m showing you is information based off of unemployment insurance wage records. It represents a complete count, we go through every quarter, and we count employees. We count, or we tabulate wages, average weekly wages, and things of that nature. It s a complete, comprehensive measure of wages and employment. The information, unfortunately, used by UNLV represented the results of a sample of less than 1,000 businesses out of -- 1,000 employers out of the roughly 60,000 that I alluded to a little bit ago. It s not the most -- well, it s not very reliable, let s put it that way. Half of their results, I think, were valid, that we have not kept pace with wage gains nationally. But the problem with using their data is it showed that we were actually down by about 8 percent, if memory serves me right, relative to just before the recession. And that s simply not the case. As I said, we re using complete count data here and, entirely comprehensive, and we re seeing wages grow. We re not growing as fast as the U.S., which is one of the arguments that UNLV made, but our wages are not declining. Although your focus is on state-level trends, I do think this is an interesting chart. We looked at wages by county. The big take away here are all the leaders in terms of absolute wages, and again this is complete count data, are rural mining-dependent counties. That s where you see the highest wages in Nevada. In one case, in Eureka, exceeding $80,000 a year. And our major population centers are pretty much right, as you d expect, right in the middle. In terms of the unemployment rate, we peaked during the recession at 14 percent. Now we re down to about 9.5 percent, so a good 4.5 percentage point decline. We ve narrowed the gap with respect to the U.S. At our worst, our unemployment rate was a good 4 points or so higher than the national average. Now we re just 2.2 points higher than the national average. So we are seeing the unemployment rate continue to come down. Unfortunately, it s still a relatively high 9.5 percent. One of the take aways I d like to leave with you is, that given the information that we have access to, our environment now, we don t have a job-loss problem per se. What we have in Nevada, the reason we re not seeing more pronounced job growth, is a lack of an uptick in hiring activity. Okay? And I m going to make that point in these next two slides. If you look at this slide, the number of folks who are unemployed because they lost a job has been easing down. You can be unemployed for any number of reasons. You can quit. You can reenter or enter the labor force and not be successful right away in terms of your job search. But, what we re showing here is that those folks who are unemployed, are so because they involuntarily lost their job. And you can see that s trending down. Now, to follow that up, we can look at it from the business perspective. When we report our job numbers -- and I m going to transition into jobs here very shortly. But when we report our job numbers, that s kind of a net figure, okay? Last month jobs were up 11,200, the month before they were down by about 8,500, but that s the end result of a lot of churn, what we call churn in the labor market. Some businesses are adding employees. Some businesses are cutting payrolls.

10 Page 10 of 36 We show the end result. But this looks beneath the surface and looks at those gross job gains and losses. The red line shows the number of jobs lost at closing or declining establishments, those that are cutting back on their employment. We are always going to have job losses. If you look back prior to the recession, we had about, on a quarterly basis, about 60,000 gross job losses every quarter. And I would argue that was a good thing, because a lot of those folks were quitting jobs and moving on to something bigger and better. So you re always going to have that churn. We re actually back to those levels of job losses right now, right around 60,000 or so every quarter. That blue line shows gross job gains at those establishments that are either opening or adding employment. And you can see that tumbled during the recession, but now it s leveled out. But we just aren t seeing that uptick in hiring to get us back to those pre-recessionary levels. So that s why I say we don t have a job-loss problem per se, but we just need to get some momentum on the hiring side of the picture. And then that green area of the graph is just the net difference. You can see we ve moved into positive territory for the last eight or nine quarters. A lot of people are interested in discouraged workers. We release our unemployment rate every month, and oftentimes I get asked, Well, what s the real unemployment rate when you take into account the number of folks who ve given up on their search for work, they ve dropped out of the labor force, and hence we don t count them in our estimate of the unemployed? That totals roughly 13,000, 14,000 individuals in Nevada who have dropped out of the labor force. If you add them back into our calculation of the unemployment rate, it would add about a point to the official measure of unemployment, on average. So as promised let me switch to the jobs front. We ve added, so far this year, about 22,300 jobs compared to the first 8 months of last year. We ve had some months of positive growth, some months of negative decline. But when you average it all out, we re sitting, as I said, a little more than 22,000 higher through the first 8 months than we were a year ago. In August, that number, if you just want to look at August-to-August, was up by about 25,200. This I just throw in for informational purposes, different ways of looking at job growth. As I said, those month-tomonth comparisons are very volatile. That s represented by the blue bar here. You can see we re kind of trending where we grow one month, we decline the next, we grow, and we decline. But overall it averages out to a positive. The red and the green bars are a lot more stable, and that s those year-over-year comparisons that I talk about. The green bar for August, shows where we stand during the first eight months of this year versus last year. And, as I said, we re up a little more than 22,000 compared to a year ago. Now, the governor has -- or previously announced a goal of 50,000 new jobs in the economy over the course of his 4-year term in office. And so I think this is an appropriate setting to kind of see where we re at in terms of progress with respect to that goal. In 2010, we added close to 11,000 jobs in the private sector. I ll focus solely on the private sector. A little more than 19,000 jobs in So far this year we re trending, in the private sector, about 20,000 higher than we did last year. So if we can hold that roughly 20,000-job gain over the remainder of the year, by the time we get to -- and we close the books on 2013, over that 3-year period from 2010 to 2013, we would have added essentially 50,000 jobs, a couple of hundred less, 49,800. So we appear to be well on our way to achieving that goal.

11 Page 11 of 36 One reason that I m confident that we ll hold those job gains that I mentioned, those 20,000 jobs or so, so far this year, is I can go back to that complete count data, which we only have through the first quarter, and see what that s telling us. And we see similar gains, at least in the first quarter, in that complete count data. So we think these monthly estimates -- the more current monthly estimates are giving us a pretty good picture in the aggregate of what s going on. In terms of where we re seeing that job growth, it s pretty widespread. Construction is picking up, adding in excess of 4,500 jobs year-over-year, as is professional and business services. I mentioned some positive visitor numbers earlier. That s translating into some continued growth in the leisure and hospitality sector. Basically every sector but one, and that s a very small sector that we call the information sector, has been showing year-over-year job growth. So it s pretty diverse, broad-based kind of growth. To me, this slide is perhaps the most important in the entire presentation. It kind of tracked how Nevada s doing with respect to the nation as a whole. And what we do, every quarter, and I m able to give you a one-quarter update to this because, again, we put it together 10 days or so ago, and we ve got some more information since. But every quarter we assess, when we get that complete count data for all states, we assess where Nevada stands. Prior to the recession, our job growth was stronger than every other state in the nation. During the recession, our declines were the most pronounced in the nation. But as you can see in 2011, 2012, we started picking up lost ground. And I can tell you that in the first quarter of this year, Nevada s job-growth rate in the private sector was stronger than 34 other states. So we re starting to see that steady kind of pickup in terms of making up for that lost ground. Are we ever going to get to the point where year after year we outperform every other state in the nation? Well, I d like to, but I doubt that will be the case. As I mentioned in my introductory comments, what we re seeing is a more moderate, but arguably sustainable kind of labor market. So we re not going to see the boom times like we saw prior to the recession, but hopefully we won t be as subject to the busts as we were during the downturn. A lot of folks are debating what I call the good-jobs/bad-jobs debate. We re seeing job growth, but are they good jobs? Oftentimes, that good/bad definition revolves around wages and parttime/full-time, things of that nature. We don t have a definitive answer to that, but we ve got several pieces of anecdotal information. If you look at the industries that our job growth is coming in, by one estimate, we re on pace to add about 52,000 jobs from 2010 to On average, private-sector wages of about $42,200 per year. We ve lost, over that 3-year period, about 26,000 jobs in industries that pay slightly above average; $42,700 versus $42,200. We ve added 78,000 jobs in industries that pay just barely below average, $41,900. So what this evidence suggests is that, there s not a huge difference between those industries that are adding employment and those that continue to cut back employment in terms of the wages that they offer. So this suggests we re not creating a bunch of minimum-wage type jobs. If we look at full-time/part-time employment, full-time employment tumbled during the recession, part-time employment at the same time increased. But you can see that since the recovery began. We ve started to see full-time employment pick up, whereas part-time employment has essentially stabilized, albeit at historically high levels. If we were creating a bunch of low-wage, minimum-wage type jobs, you d think you d see deterioration in the relationship between what we call, new-hire wages and the overall wages.

12 Page 12 of 36 When somebody gets hired into a new job, chances are, in a lot of cases that they re not going to be paid relatively high wages. They re going to be hired at the low end of the pay scale and then gradually move up that pay scale. Over time new-hire wages tend to be about two-thirds of the overall average wage, and we re not seeing deterioration in that relationship. So, again, anecdotal information that we re not seeing an abundance of low-wage, minimum-wage, deadend kind of jobs in terms of our job growth numbers. Now, with all of that said, I do think that one of the worrisome points I do see in the economy revolves around wages. Wages aren t declining. We re not seeing an abundance of minimumwage, dead-end, part-time kind of jobs, but we don t see a whole lot of momentum behind the wage structure. Wages are essentially trending pretty much sideways, certainly not keeping pace with inflation. So that, arguably, is my major concern about overall economic fundamentals. I think it s interesting to look at job growth by establishment size. It s somewhat timely in that some are arguing that with the Affordable Health Care Act, that a lot of firms will downsize to get below that, I always get it mixed up, either the 49 or 50 employee threshold. So we ve started taking a closer look at job growth by establishment size, in part, to be able to assess the extent to which that s happening going forward. But you see that we re seeing job growth in just about every size establishment. The biggest gain was in those with 20 to 49 employees, but you also see considerable job growth in those with between 100 and 250 employees, pretty much across the board. So we re not seeing any real impacts of that, at least based on this data, just quite yet. But we will be monitoring this as we go forward. If you want to define small businesses, which some people do, as those with 100 employees or less, they ve added about 27,000, 28,000 jobs since the labor market began to show some improvement back in the 2010, 2011 period. Now we ll switch to the outlook. We expect our recent pace of job trends to continue with some slight improvement. This year we expect to add about another 23,000 jobs. That should increase a little bit in 2014 and 2015, where we ll be approaching 30,000 jobs -- job growth per year. You know, anybody can come before you and lay out a forecast, so what I like to do in these kinds of settings is to take a look at some alternative forecasts and see just where we land. I can tell you that our job growth that we re forecasting for this year translates to about 2 percent growth, 2014 about 2.2 percent growth. That s identical to the forecast that Moody s Analytics, which the state is a client of, that s identical to their forecast. I have some very capable staff members that do these forecasts. They have access to forecasts of five or six other entities. And the consensus forecast this year was about 1.9 percent, pretty much identical to our 2 percent growth rate. And I do know, I just saw this last week, that Forbes Magazine estimated that or forecast that Nevada s job rates over time would grow by about 2.5 percent. And I forget the timeframe they were looking at, but that was the sixth fastest growth rate in the country. So, you know, the numbers I m presenting to you today pretty much fall right in what I would call the consensus. Now, in previous years I ve kind of stopped here, but this year we wanted to give you a little bit of an industry focus, just highlighting a couple of major industries and those industries that are kind of driving the forecast. You can see mining has, although small in numbers, job growth rates have been the strongest in the state in that sector. But with the recent declines in gold prices, we ve ratcheted down our forecast a bit in terms of mining. We still expect to see growth, but very modest growth as compared to the last couple two or three years.

13 Page 13 of 36 I mentioned earlier, construction barometers are starting to pick up. We re seeing that in terms of construction jobs. Again, this kind of illustrates the point that I was talking about, we peaked at 150,000 construction jobs during our boom period. We lost about 100,000 of those jobs during the downturn. So we re picking up off of that historical low, but nonetheless, we re seeing some noticeable gains in the construction and building sector. Retail trade employment is showing some pretty consistent gains going forward. Health care is relatively easy to forecast. You can see there was barely a blip during the recession. That s kind of just a straight-line forecast. We continue to add jobs there. Accommodation and food services, which is where you ll find our gaming establishments and restaurants and whatnot, we ll see continued job growth there. In case you re wondering, we have factored in the muchpublicized new activity, especially down on the strip in Las Vegas, a couple of new mega-resort projects going on, some major expansion in the retail and entertainment capacity, so we ve got all of that factored into this, and you see that we re looking for jobs to continue to grow. What does all that mean for the unemployment rate? Unemployment rates are very difficult to forecast. You forecast it and then the feds go back and revise your historical data on which you based your forecast. It makes it very difficult to hit that number. But I m very comfortable in saying that, given that jobs outlook that the unemployment rate will continue to trend down over time. We have it going down by roughly a half a point or so, on average, every year. So with that, I ll be happy to answer any questions that you might have. Chairman Havas thanked Mr. Anderson for his presentation. Next he asked for Dave Schmidt to address the federal unemployment debt. VI. ADDRESSING FEDERAL UNEMPLOYMENT DEBT combined with VII. VII. REGULATION TO ESTABLISH THE UI TAX RATE FOR YEAR 2014 Dave Schmidt, Economist, Research & Analysis Bureau, DETR B. Review of UI Trust Fund (Exhibit E) Dave Schmidt introduced himself. I m an economist with the Research and Analysis Bureau. And thanks also for taking the Agenda Item VI out of order. I m going to wrap it into this presentation just to hopefully, improve the flow of the information. I didn t want to hammer you with a bunch of super-detailed unemployment trends information and then have a pretty much completely unrelated presentation in the middle, so that you had a good opportunity to forget everything. I know we throw a lot of information at you. I m trying to make it as smooth as we can. I d like to start off with a chart that I ve shown the last several years to say, where we were at the start of the recession. Give you an idea of where we ve been, where we re at, and then where we think we re going for the next year. Heading into the recession, there were about 18 states that had solvent trust funds. They were reasonably well prepared for the recession. But there was a large number of states, you can see, that didn t have much in the way of reserves. In fact, in December of 2007, Michigan already was at the point where they were borrowing. They did not have any reserves anymore, and they had loans instead. But Nevada had a solvent trust fund. We were at a solvency multiple, as measured by the federal government, of about 1.02, with a

14 Page 14 of 36 recommended level of about So we were right around where we would expect to be. We had $800 million in the bank and were reasonably well prepared for a recession, or so we thought. By 2012, this is now a couple of years after the recession, there s still a large number of states that have some form of loans outstanding. Nevada is one of those states, in part, because in 2009 we paid out over $1 billion in regular unemployment benefits. Our $800 million reserve was strong for some of the recessions we had seen in the past, but it wasn t strong enough for the level of recession that we just went through. And so, there were a number of states that had to borrow. Nevada s hardly unique in this. But one thing that does make Nevada unique is that when we had to borrow, we had an unemployment rate of over 13 percent. By the time we finally did begin borrowing, in October of 2009, the recession was officially over. We had gone through the worst, but we had drawn down our reserves during that time. We had a very hard hit to the economy. We pulled down our reserves and we ve had to borrow money, like many other states, to continue paying unemployment benefits. However, as we stand here today, the trend that we see nationally, the trend that Nevada s also on, is moving away from borrowing and beginning again to rebuild some solvency. This chart shows where various states were in the second quarter of 2012 and You can see, in 2013 there were a few states that have average high cost multiples, which is that federal solvency multiple of over 1.5 times. Several more states have moved up into the 1.0 to 1.5 category. And there are fewer states that have their loans outstanding. And so we see this shift from borrowing, to looking to the future and beginning to build some solvency into the system. Nevada s on the same sort of path. This chart compares the average tax rate that s been in effect in Nevada over the last several decades, and the average tax rate which would be necessary to pay for benefits in each of those years, which is called the benefit-cost rate. And that s the orange line. This ends in And in 2012 the average tax rate in Nevada was higher than the benefit-cost rate, which means we were bringing in more money than we were paying out in benefits, allowing the state to begin paying down its loan balance and begin moving toward getting out of the debt that we find ourselves in. This is reflected in Slide 7. You can see the estimate for 2013, as we continue through the rest of this year, is that we will have improved upon where we were in We ll continue to move toward paying down the loans. As the Administrator had mentioned earlier, our loan balance is running currently at about $150 million below where we were last year. About $50 million of that came from the increased federal taxes that employers have had to pay since we have federal loans outstanding. The other $100 million or so of that improvement has come from the unemployment tax contributions that we ve received in excess of what it takes to pay for benefits. Item VI on the agenda was addressing federal borrowing, ad so I would like to take a look at the two different paths forward that Administrator Olson mentioned earlier. One is, if for some reason bonding is not a good option. Things can change very quickly, at the last minute ever. If we do not bond, that would be sort of one path that we need to look at. And then, if we continue, if the market remains good and we can get the favorable terms that we are expecting, if we issue bonds, what sort of path does that look like. If we were not to bond and we stay on the path that we re on, or that we ve been on rather, we would continue to use our unemployment contributions to pay down the loan. Employers would

15 Page 15 of 36 continue to face increased federal taxes. Those increased federal taxes do go directly toward repaying our loan at the federal level. The Treasury receives the federal unemployment taxes, figures out how much of that is due to the increased federal tax compared to the tax that everyone pays, and then credits our loan balance directly. Also, if we were to continue on that path, the interest assessments that employers receive, like the one that they received this last July, would continue to be in effect to pay for the interest costs in each year. On the other hand, if we were to issue bonds, we would be looking at issuing bonds to repay the entire federal debt before the end of this year, and really before November 10 th of this year. Doing so would eliminate the increased federal unemployment taxes that employers are paying. It would go back down to the rate that everyone pays of 0.6 percent, which is to say employers would get their full credit back. The bond contributions would be collected through an assessment that would be on top of the regular state unemployment tax, but in a sense it is replacing the increased federal taxes and interest charges that employers are paying with a bond assessment that would be collected quarterly. And then interest charges also -- that annual assessment would be replaced, because we would move away from a situation where we don t really know what we re going to have due until close to the end of the year, which is where we re at right now. We don t know that we re going to need $16.5 million. A year ago we thought maybe it ll be $18 million. And so the assessment comes late in the year to make sure we re only collecting the minimum that s necessary and to make sure we have enough to pay the federal interest. Whereas with bonds, you have a debt service schedule. You know in advance what your interest payments are going to be, and so you re able to roll those collections into the normal quarterly assessments instead of having to wait until the end of the year and then bill employers. So that would provide some more predictability in the rate-setting process each year. To sort of illustrate the replacement of the federal and interest taxes with the bond assessment rate, the chart on Slide 9 shows the no-bonding scenario and a bonding scenario for I d like to emphasize that the bond assessment rate here, that s based on one of a number of possible scenarios. I am categorically not saying the bond assessment rate will be 0.5 percent and you should base all your plans on that. No. This is, rather, one example of how might bonds look. This is a reasonable rate based on some of the scenarios, but the bond assessment rate could be, depending on if you want to keep the rate close to where it is currently or if you want to lower it a bit and spread it out longer, this is sort of the lower it a bit and spread it out longer. If you want it to be close to where we re at, you d probably be looking at a bond assessment rate that s closer to like a 0.8 percent or somewhere in that neighborhood. But as we look at the two different rates, what employers can expect to pay in 2014 if we don t bond, is a total rate with an average state unemployment of 2.25 percent, if that were kept flat. The total rate that they would be paying is about 2.62 percent, because you have the 2.25 that s part of the regular average rate. You have the increased federal taxes, which, if you were to treat that like a state tax, even though it s collected on a different wage base, that would be about 0.32 percent. And we d expect the interest assessment would be about 0.05 percent. So the total rate to employers is about On the other hand, with bonds, if the bond assessment rate is larger than the federal credit, or the federal tax -- increased federal taxes and the interest, what we would be expecting is to lower the state unemployment tax, the regular portion of the tax, to compensate for that. Because currently

16 Page 16 of 36 the rate is at 2.25 in order to repay the loans, pay back the debt, make some progress there. Because the bonds would accomplish a portion of that, you can reasonably lower that state rate, because the bond assessment rate is accomplishing part of the objective of paying off the loan and moving toward solvency. And some of that cost, then, is incorporated into the bond assessment rate. There are two different taxes that are important to keep separate. There are federal unemployment taxes and state unemployment taxes. The previous slide sort of treated the federal taxes as though it was collected on the state tax base, but really that s not the case. What happens is, the federal taxes are on a $7,000 fixed-wage base that doesn t change every year. That is paid directly to the federal government. The normal portion of this tax fund is federal and state unemployment administration, it funds extended benefit programs, and it also provides the reserves from which the Title 12 loans or the federal loans that we ve taken are ideally funded. However, that reserve was completely depleted due to the large number of states borrowing in this last recession. This functions as a fixed tax of 6 percent on that first $7,000. However, employers can typically receive a credit of 5.4 percent, making the overall rate 0.6 percent. That 5.4 percent credit is reduced in states that are borrowing money. That is where Nevada is currently at. The credit for 2012 was reduced by 0.6 percent, so employers only received a 4.8 percent credit for a total federal rate of 1.2 percent. If our federal loans are still outstanding on November 10, then a 0.9 percent credit reduction would be in effect for 2013, which would be payable by employers in early The state unemployment tax is on an indexed wage base. For 2014 that ll be $27,400. That wage base is tied to average wages in the state. It s set at two-thirds of the rate that was in effect, in this case in or rather the average wages that were in effect in It s set at twothirds of that, which gets us the $27,400. This is collected by the Employment Security Division in Nevada. It s collected on a quarterly basis. And it s used only to pay benefits or the principal of loans, which are made to pay benefits. The state unemployment tax can t be used for other purposes. It can t be used for administration. It can t be used to pay interest. It can only be used to pay benefits or loans that are explicitly made to go into the fund that can pay benefits. And this is an average rate that s set each year by regulation, which is the purpose that we re here for today. The federal offset credit reductions that the state faces can be capped. There are four different benchmarks that you can use. If you want to achieve those caps, you have to meet all four of these. The overall thrust is you have to be paying down your loans. You can t be reducing your unemployment tax effort. Your tax rate has to be high enough that it would pay for your average rate of benefit costs over the last five years. What that looks like for 2014 is, if we wanted to cap the rate for 2014 at the rate that will be in effect for 2013, if we don t repay our loans, which would be 0.9 percent, is that you would have to be looking at an average tax rate in 2014 of about 2.7 percent, because that s our five-year average benefit cost rate. For 2015, and again all of this is sort of assuming we don t bond, but just to provide the baseline for where we would be, it could be capped at 1.2 percent, which is where we would be in 2014 if we don t get the cap there. That would require a rate of only about 2.1 percent, because we re dropping off the high-cost years during the recession and adding on the more recent years as our benefit costs are coming down. If we were to stay on the course that we re on, keep the state